Executive summary

On August 15, 2016, the Department of the Treasury (Treasury) released its 2016-2017 Priority Guidance Plan (the Plan). The Plan identifies the guidance projects that Treasury and the IRS intend to prioritize during the period ending June 30, 2017. The Plan includes 37 international guidance projects, four of which are new. The remaining 33 projects carry over from the 2015-2016 Priority Guidance Plan (the Prior Year Plan), with 14 of the projects having minor clarifications or changes in scope. The new international projects are as follows:

— Regulations under Sections 897 and 1445 (FIRPTA) relating to changes in the Protecting Americans from Tax Hikes Act of 2015

— Guidance on transfers of property to partnerships with related foreign partners and controlled transactions involving partnerships, following the promulgation of Notice 2015-54

— Guidance on the procedures for US persons that are ultimate parent entities of multinational enterprise groups to voluntarily report certain information on a tax jurisdiction-by-tax jurisdiction basis for reporting periods beginning on or after January 1, 2016, and before the applicability of Treas. Reg. Section 1.6038-4 (country-by-country reporting)

— Regulations under Section 1256(g)(2) on the definition of a foreign currency contract, in light of the decision in Wright v. Commissioner, 809 F.3d 877 (6th Cir. 2016)

The Plan does not include the following international guidance projects that were included in the Prior Year Plan:

— Proposed regulations under Section 6038C on information with respect to foreign corporations engaged in a US trade or business

— A revenue procedure updating Revenue Procedure 2006-9, as amended by Revenue Procedure 2008-31, on the Advance Pricing and Mutual Agreement Program

— Revenue procedure updating Revenue Procedure 2006-54 on procedures for taxpayers requesting Competent Authority assistance;

— Regulations under Sections 6011 and 6038 on country-by-country reporting of income, earnings, taxes paid and certain economic activity for transfer pricing risk assessment

— Final regulations under Section 6038D on domestic entities holding specified foreign financial assets

As in previous years, Treasury indicates that the Plan will be updated and republished periodically to reflect additional priority items and guidance published during the plan year. The periodic updates allow Treasury flexibility to consider comments received from taxpayers and tax practitioners relating to additional projects and to respond to developments arising during the plan year.

Detailed discussion

The Plan identifies projects that are priorities for allocating resources during the year ending June 30, 2017, but does not place deadlines on the projects' completion. Listed below are the international tax-related projects and project descriptions included in this year's Plan. Projects that are new, have new references to guidance issued during the last fiscal year, or have material differences in scope this year are so noted in the descriptions.

A. Subpart F/deferral

— Guidance under Section 954(c), including regarding foreign currency gains, and the active rents and royalties exception. Temporary and proposed regulations were published on September 2, 2015.¹ (Revised scope: Prior Year Plan did not reference the active rents and royalties exception. Note that temporary and proposed regulations were published since the Prior Year Plan's release.)

— Guidance under Section 954, including regarding foreign base company sales and services income, and the use of foreign statement reserves for purposes of measuring qualified insurance income under Section 954(i). (Revised scope: Prior Year Plan did not include reference to use of foreign statement reserves.)

— Final regulations under Section 956 on the treatment of loans to foreign partnerships and related issues. Temporary and proposed regulations were published on September 2, 2015.² (Temporary and proposed regulations were published since the Prior Year Plan's release.)

— Final regulations on the treatment of upfront payments on swaps under Section 956. Temporary and proposed regulations were published on May 8, 2015.³

— Final regulations under Section 959 on previously taxed earnings and profits. Proposed regulations were published on August 29, 2006.⁴

— Final regulations under Section 964 on accounting method elections. Proposed regulations were published on November 3, 2011.⁵

— Guidance under Sections 1295, 1297 and 1298 on passive foreign investment companies. Proposed regulations regarding foreign insurance companies were published on April 24, 2015.⁶ Temporary and proposed regulations were published on December 31, 2013.⁷

B. Inbound transactions

— Guidance under Section 864, implementing Revenue Ruling 91-32 relating to sales of certain partnership interests.

— Regulations under Section 871(m) on dividend equivalent payments. Final, temporary, and proposed regulations were published on September 18, 2015.⁸ (Note that final, temporary, and proposed regulations were published since the Prior Year Plan's release.)

— Regulations under Section 892. Proposed and temporary regulations were published on November 3, 2011.⁹

— Regulations regarding publicly traded partnerships under Section 1446 and Treas. Reg. Section 1.1446-4.

— Regulations under Sections 897 and 1445 (FIRPTA) relating to changes in the Protecting Americans from Tax Hikes Act of 2015.¹⁰ (New item)

C. Outbound transactions

— Regulations and other guidance under Section 367. Notice 2014-32, regarding triangular reorganizations involving foreign corporations, was released on April 25, 2014. Notice 2012-15, regarding Section 304 transactions, was released February 10, 2012. (A reference to Notice 2012-15, regarding Section 304 transactions, was added to this project description.)

— Regulations under Section 367(d) regarding transfers of intangible property to foreign corporations. Proposed regulations regarding the transfer of property, including foreign goodwill and going concern value, were published on September 16, 2015.¹¹ Notice 2012-39 was released July 13, 2012. (Note that proposed regulations were published since the Prior Year Plan's release.)

— Regulations under Section 7874. Temporary and proposed regulations were published on January 17, 2014, regarding stock that is disregarded for purposes of measuring stock ownership.¹²

— Final regulations under Sections 7874, 367, 956, 7701(l) and 304 regarding inversions and related transactions. Temporary and proposed regulations were published on April 8, 2016.¹³ (Note that temporary and proposed regulations were published since the Prior Year Plan's release.)

— Guidance on transfers of property to partnerships with related foreign partners and controlled transactions involving partnerships. Notice 2015-54 was released on August 6, 2015.¹⁴ (New item)

D. Foreign tax credits

— Final regulations under Section 704(b) on the allocation by partnerships of foreign income tax. Temporary and proposed regulations were published on February 4, 2016.¹⁵ (Note that temporary and proposed regulations were published since the Prior Year Plan's release.)

— Guidance under Section 901, including on the allocation of foreign tax imposed on disregarded entities and partnerships.

— Regulations under Section 901(m) on covered asset acquisitions. Notices 2014-44 and 2014-45 were released on July 21, 2014, and on July 29, 2014, respectively.

— Regulations under Section 904(d)(6) on the separate application of the foreign tax credit limitation to items resourced under treaties.

— Guidance under Section 905, including final regulations under Section 905(c) on foreign tax redeterminations. Temporary and proposed regulations were published on November 7, 2007.¹⁶ Notice 2016-10 was released on January 15, 2016.¹⁷ (Note that Notice 2016-10 was published since the Prior Year Plan's release.)

E. Transfer pricing

— Guidance under Section 482, including with respect to the treatment and allocation of risk. Temporary and proposed regulations were published on September 16, 2015.¹⁸ (Note that temporary and proposed regulations were published since the Prior Year Plan's release.)

— Annual Report on the Advance Pricing Agreement Program.

F. Sourcing and expense allocation

— Regulations and other guidance under Section 861 regarding the allocation and apportionment of interest expense.

— Regulations under Sections 861, 862, and 863(a) on the character and source of income, including income arising in transactions involving intellectual property and the provision of digital goods and services.

G. Treaties

— Guidance under Section 894 and treaties, including regarding the application of various treaty provisions to hybrid entities and instruments.

H. Other

— Guidance under Sections 877A(g)(4) and 7701(a)(50)(A) regarding relinquishing United States citizenship.

— Regulations under Section 937(a), including regulations on the "presence test" for bona fide residence in US territories. Proposed regulations were published on August 27, 2015.¹⁹ (Note that proposed regulations were published since the Prior Year Plan's release.)

— Final regulations under Section 987. Proposed regulations were published on September 7, 2006.²⁰

— Guidance on Section 988 transactions.

— Guidance under Chapter 3 (Sections 1441-1446) and Chapter 4 (Sections1471-1474), including regulations on verification requirements for sponsoring entities for Chapter 4 purposes; revenue procedures providing updated agreements for foreign financial institutions, qualified intermediaries (including qualified derivatives dealers), and withholding foreign partnerships and withholding foreign trusts; and regulations on refunds and credits (Notice 2015-10 was published on May 18, 2015²¹). (Revised scope: Prior Year Plan referred broadly to guidance under Chapters 3 and 4.)

— Final regulations under Section 5000C relating to specified Federal procurement payments received by foreign persons from the US government. Proposed regulations were published on April 22, 2015.²² (Note that final regulations were published since the Plan's release.)²³

— Guidance regarding the procedures for US persons that are ultimate parent entities of multinational enterprise groups to voluntarily report certain information on a tax jurisdiction-by-tax jurisdiction basis for reporting periods beginning on or after January 1, 2016, and before the applicability of Treasury regulations Section 1.6038-4. (New item)

— Regulations and other guidance under Sections 6039F, 6048, and 6677 on foreign trust reporting and reporting with respect to foreign gifts, and under Sections 643(i) and 679 relating to certain transactions between US persons and foreign trusts.

— Regulations and other guidance under Section 7701. Proposed regulations providing guidance under Sections 7701 and 6038A treating disregarded entities as corporations for purposes of reporting and recordkeeping obligations under Section 6038A and related provisions were published on May 10, 2016.²⁴ (Note that proposed regulations were published since the Prior Year Plan's release.)

— Regulations under Section 1256(g)(2) regarding the definition of a foreign currency contract, in light of the decision in Wright v. Commissioner, 809 F.3d 877 (6th Cir. 2016).²⁵ (New item)

Implications

Similar to its predecessors, the Plan is quite ambitious, although most of the projects listed have been included in prior years. While it is difficult to predict when a particular project may be completed, recent public comments by Treasury officials suggest that the following three projects are among their immediate priorities:

— Final regulations under Section 987;

— Regulations under Section 367(d) regarding transfers of intangible property to foreign corporations; and

— Final regulations under Section 385 regarding treatment of certain interests in corporations as stock.²⁶

Although Treasury has historically issued guidance in areas identified in the priority guidance plans, there is no guarantee that guidance will be issued on identified projects by June 30, 2017, the end of the 2016-2017 business plan year. Additionally, Treasury intends to update the Plan over the course of the business plan year to reflect additional items that have become priorities during the plan year. Furthermore, the absence of an item from the original Plan (or any updated Plans) does not necessarily mean Treasury will not address an issue within the business plan year. Therefore, the Plan should not be considered an exclusive list of projects Treasury will focus on during the next 11 months.

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ENDNOTES

¹ T.D. 9733. See Tax Alert 2015-1760.

² T.D. 9733. See Tax Alert 2015-1760.

³ T.D. 9719 and REG-102656-15. See Tax Alert 2015-924.

⁴ REG-121509-00. See Tax Alert 2006-697.

⁵ REG-114749-09. See Tax Alert 2011-1889.

⁶ REG-108214-15. See Tax Alert 2015-821.

⁷ T.D. 9650 and REG-140974-11. See Tax Alert 2014-68.

⁸ T.D. 9734 and REG-127895-14. See Tax Alert 2015-1819.

⁹ REG-146537-06 and T.D. 8211 (June 24, 1988). See Tax Alert 2011-1887.

¹⁰ See Tax Alert 2016-362.

¹¹ REG-139483-13. See Tax Alert 2015-1847.

¹² T.D. 9654 and REG-121534-12. See Tax Alert 2014-147.

¹³ T.D. 9761 and REG-135734-14. See Tax Alert 2016-630.

¹⁴ See Tax Alert 2015-1613.

¹⁵ T.D. 9748. See Tax Alert 2016-274.

¹⁶ T.D. 9362 and REG-209020-86. See Tax Alert 2007-910, IRS Issues Updated Proposed and Temporary Regulations on Foreign Tax Redeterminations, dated November 9, 2007. Note that the temporary regulations have sunset.

¹⁷ See Tax Alert 2016-155, Guidance offers RICs with Section 853 elections alternative methods for handling foreign tax refunds, dated January 21, 2016.

¹⁸ T.D. 9738. See Tax Alert 2015-1848, IRS releases temporary regulations under Section 482 on coordinating transfer pricing rules with other code provisions, dated September 29, 2015.

¹⁹ REG-109813-11. See Tax Alert 2015-1671, IRS relaxes bona fide residency test for US territories in proposed regulations, dated August 27, 2015.

²⁰ REG-208270-86. See Tax Alert 2006-719, IRS and Treasury Issue New Proposed Regulations Under Section 987, dated September 20, 2006.

²¹ See Tax Alert 2015-851, Treasury and IRS plan to change rules for claiming refunds and credits for certain withholding taxes, dated May 1, 2015.

²² REG-103281-11. See Tax Alert 2015-805, Treasury and IRS issues guidance on 2% tax on payments US government makes to foreign persons under certain contracts, dated April 24, 2015.

²³ See Tax Alert 2016-1427, Treasury and IRS issue final regulations on 2% tax on payments US government makes to foreign persons under certain contracts, dated August 19, 2016.

²⁴ REG-127199-15. See Tax Alert 2016-840, Proposed rules would require reporting by foreign-owned US disregarded entities, dated May 10, 2016.

²⁵ See Tax Alert 2016-87, Sixth Circuit holds foreign currency option is Section 1256 contract, reverses Tax Court, dated January 13, 2016.

²⁶ This project appeared in a different Section of the Plan, entitled "corporations and their shareholders."